Are mid-sized businesses being overlooked by HMRC?

While HMRC have introduced plans to provide greater assistance for small businesses, mid-sized corporates have been left without dedicated assistance, argues Mark Baycroft at HaysMac

 

HM Revenue & Customs currently provide a personalised service to the largest businesses in the UK through their Customer Compliance Manager (‘CCM’) model, and the smallest micro businesses can generally access the information they need to manage their tax affairs on the HMRC website or from HMRC’s helplines.

 

This accessibility to HMRC works equally well for the accountants and tax advisers of the largest and smallest businesses. But for the large number of mid-sized businesses and their advisers, there is increasingly a sense that they have been overlooked.

 

One common surprise for mid-sized corporate clients is that there is no ability to email HMRC’s Corporation Tax team. This applies equally to the companies and their agents, and means that any written correspondence, for example, an overseas tax form that requires an HMRC signature or stamp, must be sent by post. Postal response times are improving, but have been over six months in recent memory; such response times not only impede business but can also undermine the relationship between company and agent. This contrasts with the largest businesses, who can email their CCM to obtain a more immediate response.

 

The lack of immediate access to HMRC specialists is also a disadvantage to mid-sized corporates when they undertake a one-off or unusual transaction. The disadvantage is then magnified if it occurs in conjunction with an increase in the tax provisions applying to the company, for example, if it is brought within the Corporate Interest Restriction (‘CIR’) or Anti-Hybrid rules as a result of new borrowing to finance expansion and growth.

 

 

HMRC website and helplines

The HMRC website provides a vast amount of helpful information, including access to their internal manuals with multiple examples. The problem with the HMRC website is that the examples given are very distinct and fall at either end of a range of possible transactions that could be undertaken. The responses from the HMRC helpline generally follow a similar pattern.

 

For smaller micro businesses, many one-off or unusual transactions, from that business’s perspective, will fall within the distinct examples used by HMRC and the tax consequences will be clear. Minor variations from HMRC’s published guidance can also generally be dealt with by experienced professional advice.

 

When mid-sized corporates undertake one-off or unusual transactions, past experience is that they do not fall into one of HMRC’s distinct examples; instead, they often fall in the middle of two different examples with differing tax consequences and valid arguments, based on many years of professional experience, for either tax treatment to apply.

 

At this point, the largest businesses would be speaking to their CCM for a view from HMRC on which tax treatment they would find acceptable. Mid-sized corporates have no such luck. Instead, these companies and their advisers are referred back to the clear-cut examples in HMRC’s manuals that simply do not fit the fact pattern of the actual transaction. It hardly needs to be said that this is a less-than-ideal position for a business to find itself in.

 

 

Growing pains

As a mid-sized corporate business expands, it will be subject to additional tax compliance provisions. Some of these are necessarily more technically complex, but the sheer volume of additional provisions also increases the complexity of the tax compliance process in and of itself.

 

Professional advisers can assist mid-sized corporates with this additional complexity, both from a technical and volume perspective, but the interaction of these increasingly complex provisions with one-off or unusual transactions still creates uncertainty. The reality is that commercial transactions are almost constantly evolving and, as a result, there is often uncertainty over the tax treatment of at least one aspect.

 

The ideal position would be for corporates and their advisers to be able to access HMRC guidance to resolve the uncertainty. Whilst certain corporate transactions, such as group reorganisations, are covered by HMRC statutory clearance processes, refinancing and significant asset purchases are generally not, and so alternative access to HMRC’s view is required.

 

HMRC do offer a number of contact points to seek their view on more complex questions, including non-statutory clearances, temporary CCM and customer support teams for mid-sized and growing businesses. What puts mid-sized corporates at a disadvantage is that there is a time lag in obtaining these views, and there is no guarantee that a subsequent request would go to the same individual.

 

These contact points are also designed to give a view on a clearly defined transaction without a discussion of changes that could improve the tax position. This compares with a more open discussion that larger businesses may be able to benefit from with a permanently assigned CCM.

 

 

Further challenges

Whilst it is clear that mid-sized corporates and their advisers do not have the same level of access to and support from HMRC, it is difficult to see an easy solution to the problem. There is an incentive for HMRC to provide more support to these taxpayers as they make a significant contribution to the tax gap, but the internal reorganisations of HMRC have led to the loss of some of the most experienced staff who could provide this support, with the remainder working to recover the tax after the event.

 

It would require a wholesale change of approach at HMRC to increase the level of support in advance of tax revenues being received, but perhaps there is a lesson to be learned from the proposed change in approach to R&D claims, where HMRC are looking to engage more with taxpayers before making repayments of tax.

 

Could this approach be extended to engaging more with taxpayers to make sure that the right amount of tax is paid the first time, rather than following an enquiry? In the vast majority of cases, it seems to be safe to say that mid-sized business and their advisers would prefer this greater certainty. 

 

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Mark Baycroft is a Partner at HaysMac

 

Main image courtesy of iStockPhoto.com and Alphotographic